setting prices copyright © houghton mifflin company. all rights reserved. powerpoint presentation...

Setting Prices

Copyright © Houghton Mifflin Company. All rights reserved.Copyright © Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

2121

Part FivePart FivePricing Pricing

DecisionsDecisions

Copyright © Houghton Mifflin Company. All rights reserved. 21–2

Chapter Learning Objectives

• To understand the six major stages of the process used to establish prices

• To explore issues related to developing pricing objectives

• To understand the importance of identifying the target market’s evaluation of price

• To examine how marketers analyze competitive prices

• To describe the bases used for setting prices

• To explain the different types of pricing strategies

• To understand the factors that may impact the setting of a specific final price


Chapter Outline

• Development of Pricing Objectives• Assessment of the Target Market’s Evaluation of

Price• Evaluation of Competitors’ Prices• Selection of a Basis for Pricing• Selection of a Pricing Strategy• Determination of a Specific Price


Stages for Establishing Prices

FIGURE 21.1


Development of Pricing Objectives

• Pricing objectives–are goals that describe what a firm wants to achieve

through pricing.–form the basis for decisions about other stages of

pricing.–must be consistent with the firm’s overall marketing

objectives.–can support the attainment of multiple short-term and

long-term goals.


Development of Pricing Objectives (cont’d)

Cash FlowCash FlowCash FlowCash Flow

SurvivalSurvivalSurvivalSurvival ProfitProfitProfitProfit

Return onReturn onInvestmentInvestment

Return onReturn onInvestmentInvestment

PricingPricingObjectiveObjective

ss

PricingPricingObjectiveObjective

ss

ProductProductQualityQuality

ProductProductQualityQuality

Status QuoStatus QuoStatus QuoStatus Quo Market ShareMarket ShareMarket ShareMarket Share


Assessment of the Target Market’s Evaluation of Price

• The Importance of Price–Type of product–Type of target market–The purchase situation

• Value Focus–A combination of product’s price and quality attributes–Helps customers differentiate a product from competing

brands–Guides marketers in their evaluation of the importance

of price to the consumer


Evaluation of Competitors’ Prices

• Sources of Competitors’ Pricing Information–Comparative Shoppers

• Persons who systematically collect data on competitors’ prices

–Purchased Price Lists• Developed by syndicated marketing research services

• Importance of Knowing Competitors’ Prices–Helps determine how important price will be to

customers–Helps marketers in setting competitive prices for their

products


Selection of a Basis for Pricing

• Dimensions of Pricing–Cost, demand, and competition

• Bases for Pricing–Type of product–Market structure of the industry–Brand’s market share relative to competing brands–Customer characteristics


Selection of a Basis for Pricing (cont’d)

• Cost-Based Pricing–Adding a dollar amount or percentage to the cost of the

product

• Cost-Plus Pricing–Adding a specified dollar amount or percentage to the

seller’s cost

• Markup Pricing–Adding to the cost of the product a predetermined

percentage of that cost


Selection of a Basis for Pricing (cont’d)

• Demand-Based Pricing–Customers pay a higher price when demand for a

product is strong and and a lower price when demand is weak.

–Effectiveness depends on marketer’s ability to estimate demand accurately.

• Competition-Based Pricing–Pricing influenced primarily by competitors’ prices–Importance increases when competing products are

relatively homogeneous–May necessitate frequent price adjustments


Calculating Markups

Markup as a Percentage of the Selling Price Selling Price

Markup =

60

15 = 25.0%=

Markup as a Percentageof the Cost Cost

Markup

45

15 = 33.3%==


Selection of a Pricing Strategy

• Differential Pricing–Charging different prices to different buyers for the

same quality and quantity of product

Strategy Action

Negotiated pricing Establishing a final price through bargaining

Secondary-market pricing

Setting one price for the primary market and a different price for another market

Periodic discounting Temporary reduction of prices on a patterned or systematic basis

Random discounting Temporary reduction of prices on an unsystem-atic basis


New Product Pricing

• Price Skimming–Charging the highest possible price that buyers who

desire the product will pay

• Penetration Pricing–Setting prices below those of competing brands to

penetrate a market and gain a significant market share quickly


Product-Line Pricing

–Establishing and adjusting prices of multiple products within a product line

Strategy Action

Captive pricing Pricing the basic product in a product line low while pricing related items at a higher level

Premium pricing Pricing the highest-quality or most versatile products higher than other models in the product line

Bait pricing Pricing an item in the product line low with the intention of selling a higher-priced item in the line

Price lining Setting a limited number of prices for selected groups or lines of merchandise


Price Lining

FIGURE 21.2


Psychological Pricing–Pricing that attempts to influence a customer’s

perception of price to make a product’s price more attractive

Strategy Action

Reference pricing Pricing a product at a moderate level and positioning it next to a more expensive model or brand

Bundle pricing Packaging together two or more comple-mentary products and selling them for a single price

Multiple-unit pricing Packaging together two or more identical products and selling them for a single price

Everyday low prices (EDLP)

Setting a low price for products on a consis-tent basis


Psychological Pricing (cont’d)

Strategy Action

Odd-even pricing Ending the price with certain numbers to influence buyers’ perceptions of the price or product

Customary pricing Pricing on the basis of tradition

Prestige pricing Setting prices at an artificially high level to convey prestige or a quality image


Selection of a Pricing Strategy (cont’d)

• Professional Pricing–Fees set by people with great skill or experience in a

particular field

• Promotional Pricing–Price leaders

• Products priced below the usual markup, near cost, or below cost

–Special-event pricing• Advertised sales or price cutting linked to a holiday,

season, or event

–Comparison discounting• Setting a price at a specific level and comparing it with a

higher price


After reviewing this chapter you should:

• Understand the six major stages of the process used to establish prices.

• Have explored issues connected with developing pricing objectives.

• Understand the importance of identifying the target market’s evaluation of price.

• Be able to analyze competitive prices.

• Be familiar with the bases used for setting prices.

• Understand the different types of pricing strategies.

• Understand the features that impact the setting of a specific, final price.

Chapter 21Chapter 21Supplemental SlidesSupplemental Slides



Key Terms and Concepts

• The following slides (a listing of terms and concepts) are intended for use at the instructor’s discretion.

• To rearrange the slide order or alter the content of the presentation–select “Slide Sorter” under View on the main menu.–left click on an individual slide to select it; hold and drag

the slide to a new position in the slide show.–To delete an individual slide, click on the slide to select,

and press the Delete key.–Select “Normal” under View on the main menu to return

to normal view.


Important Terms

• Pricing objectives–Goals that describe what a firm wants to achieve

through pricing

• Value Focus–A combination of product’s price and quality attributes

• Comparative Shoppers–Persons who systematically collect data on competitors’

prices

• Cost-Based Pricing–Adding a dollar amount or percentage to the cost of the

product


Important Terms

• Cost-Plus Pricing–Adding a specified dollar amount or percentage to the

seller’s cost

• Markup Pricing–Adding to the cost of the product a predetermined

percentage of that cost

• Demand-Based Pricing–Customers pay a higher price when demand for a

product is strong and and a lower price when demand is weak.

• Competition-Based Pricing–Pricing influenced primarily by competitors’ prices


Important Terms

• Competition-Based Pricing–Pricing influenced primarily by competitors’ prices

• Differential Pricing–Charging different prices to different buyers for the

same quality and quantity of product

• Negotiated Pricing–Establishing a final price through bargaining

• Secondary-Market Pricing–Setting one price for the primary market and a different

price for another market


Important Terms

• Periodic Discounting–Temporary reduction of prices on a patterned or

systematic basis

• Random Discounting–Temporary reduction of prices on an unsystematic

basis

• Price Skimming–Charging the highest possible price that buyers who

desire the product will pay


Important Terms

• Penetration Pricing–Setting prices below those of competing brands to

penetrate a market and gain a significant market share quickly

• Product-Line Pricing–Establishing and adjusting prices of multiple products

within a product line

• Captive Pricing–Pricing the basic product in a product line low while

pricing related items at a higher level


Important Terms

• Premium Pricing–Pricing the highest-quality or most versatile products

higher than other models in the product line

• Bait Pricing–Pricing an item in the product line low with the intention

of selling a higher-priced item in the line

• Price Lining–Setting a limited number of prices for selected groups

or lines of merchandise


Important Terms

• Psychological Pricing–Pricing that attempts to influence a customer’s

perception of price to make a product’s price more attractive

• Reference Pricing–Pricing a product at a moderate level and positioning it

next to a more expensive model or brand

• Bundle Pricing–Packaging together two or more complementary

products and selling them for a single price


Important Terms

• Multiple-Unit Pricing–Packaging together two or more identical products and

selling them for a single price

• Everyday Low Prices (EDLP)–Setting a low price for products on a consistent basis

• Odd-even pricing–Ending the price with certain numbers to influence

buyers’ perceptions of the price or product

• Customary pricing–Pricing on the basis of tradition


Important Terms

• Prestige pricing–Setting prices at an artificially high level to convey

prestige or a quality image

• Professional Pricing–Fees set by people with great skill or experience in a

particular field

• Price Leaders–Products priced below the usual markup, near cost, or

below cost

• Special-Event Pricing–Advertised sales or price cutting linked to a holiday,

season, or event


Important Terms

• Comparison Discounting–Setting a price at a specific level and comparing it with

a higher price


Transparency Figure 21C

Bases for Pricing

setting prices copyright © houghton mifflin company. all rights reserved. powerpoint presentation...

Documents

pricing objectivesto

stages of pricing

pricing strategydetermination

important price

higher price

lower price

competitors pricesselection

competitors pricesimportance